Reference no: EM131718282

Q1. Lallone Company makes fine jewelry that it sells to department stores throughout the United States. Lallone is trying to decide which of two bracelets to manufacture. Cost data pertaining to the two choices follow.

	Bracelet A	Bracelet B
Cost of materials per unit	$26	$42
Cost of labor per unit	32	32
Advertising cost per year	9.700	7,700
Annual depreciation on existing equip.	5,000	6.000

Required - Identify the avoidable costs and determine the amount of avoidable cost for each product.

Q2. Ramos Corporation is considering the elimination of one of its segments. The segment incurs the following fixed costs. If the segment is eliminated, the building it uses will be sold.

Advertising expense	$ 88,000
Supervisory salaries	173,000
Allocation of companywide facility-level costs	64.000
Original cost of building	119.000
Book value of building	67.000
Market value of building	84.000
Maintenance costs on equipment	73.000
Real estate taxes on building	14,000

Required - Based on this information, determine the amount of avoidable cost associated with the segment?

Q3. Bennett Construction Company is a building contractor specializing in small commercial buildings. The company has the opportunity to accept one of two jobs; it cannot accept both because they must be performed at the same time and Bennett does not have the necessary labor force for both jobs. Indeed, it will be necessary to hire a new supervisor if either job is accepted. Furthermore, additional insurance will be required if either job is accepted. The revenue and costs associated with each job follow.

Cost Category	Job A	Job B
Contract price	$808,000	$694,000
Unit-level materials	244,500	224,350
Unit-level labor	251,050	306,900
Unit-level overhead	19,000	13,700
Supervisor's salary	114,870	114,870
Rental equipment costs	25,700	28,300
Depreciation on tools (zero market value)	20,800	20,800
Allocated portion of companywide facility-sustaining costs	11,000	9,900
Insurance cost for job	17,300	17,300

a. Calculate the contribution to profit from Job A and Job B.

b. Assume that Job A is no longer available. Bennett's choice is to accept or reject Job B alone. Calculate the contribution to profit from Job B.

Q4. Levy Quilting Company makes blankets that it markets through a variety of department stores. It makes the blankets in batches of 3,500 units. Levy made 35,000 blankets during the prior accounting period. The cost of producing the blankets is summarized as follows.

Materials cost ($28 per unit × 35,000)	$980,000
Labor cost ($26 per unit × 35,000)	910,000
Manufacturing supplies ($4 × 35,000)	140,000
Batch-level costs (10 batches at $7,000 per batch)	70,000
Product-level costs	220,000
Facility-level costs	320,000
Total costs	$2,640,000
Cost per unit = $2,640,000 ÷ 35,000 = $75.43

a- Rios Motels has offered to buy a batch of 500 blankets for $64 each. Levy's normal selling price is $93 per unit, calculate the relevant cost per unit for the special order. Should Levy Accept?

b- Rios offered to buy a batch of 3,500 blankets for $64 per unit, calculate the relevant cost per unit for the special order. Should Levy accept the special order?

Q5. Niklos Boot Co. sells men's, women's, and children's boots. For each type of boot sold, it operates a separate department that has its own manager. The manager of the men's department has a sales staff of nine employees, the manager of the women's department has six employees, and the manager of the children's department has three employees. All departments are housed in a single store. In recent years, the children's department has operated at a net loss and is expected to continue to do so. Last year's income statements follow.

Required - Prepare the income statement for the company ax the whole without the children's department.

Q6. Niklos Boot Co. sells men's, women's, and children's boots. For each type of boot sold, it operates a separate department that has its own manager. The manager of the men's department has a sales staff of nine employees, the manager of the women's department has six employees, and the manager of the children's department has three employees. All departments are housed in a single store. In recent years, the children's department has operated at a net loss and is expected to continue to do so. Last year's income statements follow.

Cost of materials (13,400 Units × $20)	$268,000
Labor (13,400 Units × $26)	348,400
Depreciation on manufacturing equipment*	41,000
Salary of supervisor of engine production	67,000
Rental cost of equipment used to make engines	23,000
Allocated portion of corporate-level facility-sustaining costs	87,000
Total cost to make 13,400 engines	$834,400

*The equipment has a book value of $107,000 but its market value is zero.

a. Determine the maximum price per unit that Rimes would be willing to pay for the engines.

b. Determine the maximum price per unit that Rimes would be willing to pay for the engines, if production increased to 18,300 units?